A Boost for Energy Startups

June / July 2004 By: Margaret Lovell Volume 2 Number 3

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Here's a glimpse into the future that should send regulators and investors racing to fund any alternative energy proposal that has a chance of delivering on its promise. The Department of Energy projects that U.S. energy demand will increase from 97.7 to 136.5 quadrillion British thermal units (Btu) between 2002 and 2025. A barrel of oil will cost $52 in 2025 and petroleum imports will account for 70 percent of U.S. petroleum demand by 2025, up from 54 percent in 2002.

This projection of need and cost, to say nothing of the unsettled nature of many of the oil-producing regions of the world, should make the decision to move away from petroleum energy sources and toward renewable sources a no-brainer. Yet, the 2003 report on Clean Energy Trends by CleanEdge, Inc., a research and consulting firm specializing in clean technologies, states that "—€¦government commitments to clean-energy development over the past three decades have been tepid at best, frustrating companies seeking a sustained, orderly market to fuel their growth. Many early stage companies will likely wither on the vine for want of consistent policies and sufficient capital." In spite of such lukewarm support by governments and investors, some companies are still banking on the wisdom of the marketplace to move alternative energy sources into the mainstream.

While some large corporations like Alcoa, DuPont, General Electric, Shell and Caterpillar are joining the green power revolution, much of the commitment to alternatives to fossil-based energy comes from small companies, some of them one-product startups. These clean-energy entrepreneurs can get a leg up from business incubators that focus on their technologies. The National Alliance of Clean Energy Business Incubators is the national organization dedicated to providing business and financial services tailored to the needs of the clean-energy community.

In the mid-1990s, DOE's National Renewable Energy Laboratory (NREL) recognized that many young companies in the clean-energy industry needed more preparation before they were ready to make effective cases to investors. According to Lawrence Murphy, NREL's manager of enterprise development programs, the companies might have an exciting technology but most did not have a compelling business case or qualified management team. Business incubators seemed the obvious answer. Murphy says, "We looked at how to best structure an incubator program and decided to work with existing incubators that have strong, successful programs and good networks that include advisors, investors, etc. First and foremost, though, they needed a technology focus, and had to have or want to have a clean-energy element in their portfolio. They also needed a way to become self-sustaining in the clean-energy arena. There might be 950 business incubators around the country, but we estimated only about 50 met our criteria.
For instance, many incubators are not technology-focused and simply provide low-cost corporate housing and administrative support. If the incubators don't provide business development tools and solid networks, they and their client companies will always struggle."

After further research and some trial and error attempts, NREL established, in 2002, the Alliance to help entrepreneurs working on a broad range of clean-energy technologies, including solar, wind, biomass, geothermal, microturbine, fuel cell, power quality, energy efficiency, alternative fuels and infrastructure and information technologies. The Alliance helps the young companies develop the tools and skills necessary for success, including a solid business concept and plan, seasoned management team, contacts and established relationships with suppliers and industry leaders, and access to capital.

The eleven members of the Alliance provide a wide array of services that give their clients a strong competitive advantage over other clean-energy startups.
Access to advice from leaders in the energy community, in-house consulting, strategy reviews, financing referrals, introductions to potential partners and marketing and public relations aid are only a few of these services. Incubators may also give clients access to appropriate rental space and flexible leases, shared office services and equipment, and the technology support services necessary for growth. To assist clean-energy entrepreneurs and support the Alliance, NREL has developed a network of investors, energy experts, and industry leaders to provide mentoring, financing, and introductions to the global energy community.

Successes have been slow in coming for the Alliance-supported companies. The economy generally and the renewable energy economy specifically are challenges for any startup organization. However, some incubators and their clients are beginning to see light at the end of the funding tunnel.

One of the Alliance incubators, the Florida Technological Research and Development Authority (TRDA), helped Sigarca, Inc. receive a $30,000 Florida-based Venture Smart small business grant to advance its innovative work in producing hydrogen from biomass. Sigarca founder Jose Sifontes has licensed a University of Florida-patented composting process and made improvements to its portability and efficiency. The enhanced system, called Swanco, is an anaerobic digestion process that converts the quick-growing (12 to14 feet in as little as 4 to 5 months) kenaf plant into methane-rich biogas (similar to what landfills produce). From the methane in the biogas, Sifontes will be able to strip out hydrogen through a catalytic reformation process.

Randy Ball, TRDA's energy program manager, says that Sifontes is not limited to using just kenaf in his process. "Swanco will not only be important for the biogas that it will produce but for what it may reduce. The process is capable of using municipal solid waste (MSW). If counties and cities begin to license the Swanco technology and apply it toward MSW, they will have an environmentally friendly way of ridding themselves of MSW while generating profit from the biogas produced in the process."

An Outstanding Presentation award winner of NREL's 2003 National Clean Energy Venture Competition, Power Tube, Inc., is a promising client of the Clean Energy Incubator (CEI), which is a program of the University of Texas/Austin-affiliated IC2 Institute.

Power Tube has developed a new proprietary technology that uses the heat of the earth to create energy. Their device, called Argus, is a clean energy, closed loop, geomagmatic, renewable power plant. The patented technology includes a turbine/generator, condenser and pump, boiler and thermal riser to generate electricity from sub-surface heat of as little as 110-200° C.

Richard Amato, CEI director, says that the greatest contribution of his group to Power Tube was the introduction of experienced startup entrepreneur, Glenn Lovelace, to Doyle Brewington, the inventor of the Argus concept. Lovelace is now the CEO of Power Tube and has helped bring in seed capital for prototype development. According to Amato, "Glenn brought a business focus to what had primarily been a technology-based organization.

In addition to its role as organizer of the Alliance, NREL also sponsors the Industry Growth Forums, which bring together startup clean-energy companies, venture capitalists and senior business executives to discuss business growth strategies and facilitate strategic business partnerships. Forums provide a venue for companies to present and receive feedback on business plans before a panel of venture capitalists and other business executives interested in the industry, businesses, and technologies discussed. According to NREL's Murphy, the Alliance is now integrated into the forum events and NREL sponsors the largest clean-energy venture forum in North Americaand perhaps the world.

Margaret Lovell is a senior technical writer at Technically Write.
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